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Snowflake Inc. (SNOW) Q1 2022 Earnings Call Transcript

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Snowflake Inc. (NYSE: SNOW)

Q1 2022 Earnings Call

May 26, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by, and welcome to the Q1 FY '22 Snowflake earnings conference call. [Operator instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] I would now like to hand the conference over to your speaker for today, Mr. Jimmy Sexton, head of investor relations.

Thank you, sir. Please go ahead.

Jimmy Sexton -- Head of Investor Relations

Start over. Good afternoon, and thank you for joining us on Snowflake's Q1 fiscal 2022 earnings call. Joining me are Frank Slootman, our chairman and chief executive officer; and Mike Scarpelli, our chief financial officer. During today's call, we will review our financial results for fiscal -- first-quarter fiscal 2022 and discuss our guidance for the second-quarter and full-year fiscal 2022.

During today's call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, strategy, products and features, long-term growth, and overall future prospects. These statements are subject to risks and uncertainties which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed after market close today and in our SEC filings, including our most recently filed Form 10-K for the fiscal year ended January 31, 2021, and the Form 10-Q for the quarter ended April 30, 2021, that we will file with the SEC. We caution you to not place undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in our expectations.

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool owns shares of and recommends Snowflake Inc. The Motley Fool has a disclosure policy.

We'd also like to point out that on today's call, we will report both GAAP and non-GAAP results. We use these non-GAAP financial measures internally for financial and operational decision-making purposes and as a means to evaluate period to period comparisons. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. To see the reconciliations of these non-GAAP financial measures, please refer to our earnings press release distributed earlier today and our investor presentation, which are posted at investors.snowflake.com.

A replay of today's call will also be posted on the website. With that, I would now like to turn the call over to Frank.

Frank Slootman -- Chairman and Chief Executive Officer

Thanks, Jimmy. Good afternoon, everybody. We reported strong Q1 results with 110% year-on-year growth to $214 million in product revenues, reflecting strengthened Snowflake consumption. Remaining performance obligations grew 206% year on year to $1.4 billion and they're getting strength in sales across the board.

While maintaining a net revenue retention rate of 168%, we also generated $23 million of adjusted free cash flow in the quarter. We are expanding our geographical scope in all three major theaters, both EMEA and APJ have breakout bookings quarters. EMEA grew more than 200% and Asia Pacific grew more than 300% year over year. At the end of Q1, we had 104 customers with over 1 million in product revenue, an increased from 77 in the previous quarter.

During Q1, we had key enterprise wins, including Datadog, Equifax, and Walgreens Boots Alliance. Our growth trajectory is a function of several factors. First, the modernization from on-premise to cloud computing is changing the landscape. Customers are moving workloads to public clouds to take advantage of unlimited capacity and scale and the utility model that lets them pay by the drink.

Secondly, through Snowflake's cloud-native software architecture, customers achieve remarkable gains in performance, economy, and data governance. Third, customers are now seeking to transform from a world where data influence people to one in which data drives operations directly. The data drives digital transformation. Data is the beating heart of the modern enterprise, and Snowflake is becoming core infrastructure to the digital economy.

The data economy has seen some lift from the pandemic dislocation, but these are long-term secular trends enabled by new technology. Aside from pent-up demand, the possibilities are only limited now by one's imagination and budgets. Part of our growth at scale strategy has been our transition to the data cloud. Our original focus of targeting legacy data warehouse workloads is going strong and that will continue indefinitely.

It has been a tried and true strategy for Snowflake. Snowflake has now processed more than a billion queries in a day, and that number grew more than 100% year on year. But our view of the future is more ambitious. We seek to build and deploy core infrastructure for the digital economy, and the data cloud is exactly that.

Data cloud is an active dynamic hub of thousands of data relationships between Snowflake parties. Many of these relationships are with data providers through the Snowflake data marketplace. And many others are our key business partners. Data providers like ZoomInfo and Foursquare are using the data cloud to unlock more value to their business.

Health care organizations are using data insights to improve quality of patient care. Retailers like Albertsons are sharing data with consumer packaged goods companies, and media companies are accelerating advertising revenue with Snowflake data marketplace. Historically, data warehouses refreshed through large batch processes on a periodic basis. That's because data was force-fed into them from different sources.

Today, the data cloud is near real-time, with data continuously pulsing through the cloud to being analyzed and acted on, lights out and at light speed. There are no limits anymore on how many analytical processes is going to run concurrent -- concurrently against the same data and how frequently they are run. This has changed people's perceptions to what is possible. The data cloud is the sum of all data networking relationships that are active at any point in time.

We track these relationships through what we call edges. At the end of the quarter, 15% of our rapidly expanding customer base had data edges in place with external Snowflake accounts, compared to 10% a year ago. And the number of edges this period grew 33% quarter on quarter. Customers share data for many reasons.

They are specific to them and their industries. But they all seek to enrich their data, gain more effective analytical insights, and do so faster and more cost-effectively. Snowflake's focus on vertical industries is well under way. We've organized our organization around six core verticals.

They are financial services, healthcare and life sciences, retail and consumer packaged goods, advertising, media and entertainment, technology, and public sector. This vertical industry focus will intensify across our sales, marketing, alliances, product, and service organizations. As a result, we expect Snowflake to become as visible in large enterprise IT environments as in the line of business themselves. While the company maintains a geographical backbone in markets around the world, the industry aperture is rapidly coming into focus.

Partners are also stepping up to Snowflake, which is a key element of our strategy. Deloitte crossed the $100 million mark on Snowflake business, which was their fastest ramp ever from a standing start for an alliance. We will host the annual Snowflake Summit, June 8 through 10. More than 50,000 attendees are expected, including 60-plus customer sessions with the likes of Adobe, BlackRock, Capital One, Goldman Sachs, InstaCards, Kraft Heinz, JetBlue, Morgan Stanley, and NBCUniversal.

We invite investors to attend, get a better understanding of our data cloud strategy, and hear the latest news in platform enhancements, optimizations, data governance, and vertical industry use cases. In closing, Q1 was a great start to the fiscal year and we are most looking forward to the balance of the year. With that, I will now turn the call over to Mike.

Mike Scarpelli -- Chief Financial Officer

Thank you, Frank. We saw continued momentum in Q1 with another quarter of great execution to start our fiscal year. Our Q1 product revenues were $214 million, representing 110% year-over-year growth. Our remaining performance obligations were $1.4 billion.

Media and telecom, technology, and financial services customers drove the outperformance and we saw meaningful growth from our healthcare customers. Our strong RPO results reflect more multimillion-dollar relationships, with particular strength in the telecom and technology sectors. Of the $1.4 billion in RPO, we expect approximately 54% to be recognized as revenue in the next 12 months. Growth in our existing customer base continues with our results.

We added 393 net new customers in Q1, including three seven-figure new logos. These customers only accounted for 1% of revenues. We are hyper-focused on penetrating the largest enterprises globally as we believe these organizations provide the last -- largest opportunity for account expansion. We are already benefiting from our maturing enterprise sales efforts.

In Q1, the number of customers with greater than $1 million in trailing 12-month product revenue increased to 104, up from 77 last quarter. When we expand within our largest customers, we typically replace more than one solution. In many cases, we replace on-premise and first-generation cloud solutions and we address new workloads. Snowflake creates use cases that were previously impossible.

This is what fuels our 168% net revenue retention rate. And we remain confident that our net revenue retention will stay above 160% for the fiscal year. We continued to invest in our international opportunity and believe there are significant runway ahead of us. As Frank mentioned, we are seeing tremendous growth within EMEA and APAC geographies as our sales organization takes shape.

We believe we're in the early innings of addressing the largest enterprises abroad. First quarter was a record hiring quarter for us. We onboarded 436 net new employees. We continue to target the highest-performing employees, prioritizing talent acquisition in product, engineering, and enterprise sales groups.

Turning to margins. On the non-GAAP basis, our product gross margin was 72%, up 600 basis points from last year. Favorable cloud service agreements, growing scales across regions, and our enterprise customers' success all contribute to steady gross margin improvements. Operating margin was negative 16%, benefiting from revenue outperformance.

Our adjusted free cash flow margin was 10%, positively impacted by strong collections from Q4 bookings and operating margin outperformance. As a reminder, adjusted free cash flow excludes the impact of net cash paid or received on both employee and employer payroll tax-related items on employee stock option transactions. This quarter, we saw a $10 million impact from those items. While we continue to focus on long-term margin expansion and profitability, we do experience free cash flow seasonality.

In fiscal '21, Q1 and Q4 were our strongest free cash flow quarters while Q2 was our weakest. We expect to experience this seasonality in future periods. We maintained our strong cash position with approximately $5.1 billion in cash, cash equivalents, and short-term and long-term investments. Snowflake Ventures leverages this position to evaluate strategic opportunities with announced investments in ThoughtSpot and Dataiku in the quarter.

We continue to provide high-growth companies with capital to engage more with the data cloud. Now, let's turn to our guidance and outlook. For the second quarter of fiscal 2022, we expect product revenues between $235 million and $240 million, representing year-over-year growth between 88% and 92%. Turning to margins, we expect on a non-GAAP basis negative 18% operating margin and we expect 297 million weighted average shares outstanding.

For the full-year fiscal 2022, we expect product revenues between $1.02 billion and $1.035 billion, representing year-over-year growth between 84% and 87%. This includes an estimated negative $13 million impact from a storage compression improvement we just introduced that benefits our customers. We regularly introduce products and performance enhancements that lower the costs for our customers to run Snowflake and we believe this will drive more compute within the platform longer term. Turning to profitability, we expect on a non-GAAP basis 72% product gross margin, negative 17% operating margin, and breakeven adjusted free cash flow.

And we expect 299 million weighted average shares outstanding. Our outlook still assumes that we will add more than 1,200 net new employees during the fiscal year. With respect to COVID, our forecast assumes that we will continue to work remotely for the foreseeable future, with an increase to travel expenses in the back half of the year. While we anticipate an eventual return to the office, we do not have a specific timeline for that goal.

And lastly, we will host our first virtual Investor Day on June 10 in conjunction with Snowflake Summit. You can register for the event at investors.snowflake.com. With that, operator, you can open the line for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Brent Bracelin with Piper Sandler.

Brent Bracelin -- Piper Sandler -- Analyst

Thanks. Mike, maybe start with you, and a quick follow-up for Frank. Consumption in Q1 here was very strong, $35 million increase in product revenue and another triple-digit product growth quarter. As you look at kind of Q1 consumption trends, A, seasonality clearly didn't show up.

Was that surprising? Any other surprises just as you look at individual customer consumption trends here that drove the outperformance in Q1?

Mike Scarpelli -- Chief Financial Officer

Remember, our revenue is based on actual customer consumption. It's not a ratable recognition. So we did have -- as I mentioned, we did have some outperformance in some specific customers. And part of that is tied to certain projects they're working on.

And just because a customer consumed a certain amount one quarter doesn't mean they're going to consume that same amount next quarter if they're not running those same projects. And so we're very happy with the revenue perf -- outperformance in Q1. And our guidance reflects where we think we're going to be for the balance of the year.

Brent Bracelin -- Piper Sandler -- Analyst

Got it. And then, Frank, just following up for you here. If you think about kind of the data-sharing opportunity, clearly it seems to be catching on like wildfire so much so you're starting to see the creation of even new open source projects that are also tied to data sharing. As you think about the 27 net new million-dollar-plus customers, do you think data sharing is now contributing to these million-dollar-plus customers, or do you think a bulk of that big spend is still tied to kind of replacement opportunity around data warehousing and the data share driver is still to come?

Frank Slootman -- Chairman and Chief Executive Officer

Well, the -- you know, Brent, the answer is really, you know, both, you know, customers need to walk before they run. So, you know, a lot of their initial focus is on workload transitions and so on. But, you know, everybody has a very, very keen view in terms of, you know, where they want to be, where they're going to be over time. And you're exactly right.

You know, data sharing is absolutely essential. You know, it will really enable data sciences in order to create context around data, in order to enrich data to really fully reach that potential. I mean, it's taken us some time to really evangelize this whole idea. But as you said, it is resonating very, very aggressively in the marketplace.

We have a lot going on in our vertical markets that are very specific to those contacts, very specific to the unique circumstances of vertical industry. So we're really excited. We're very well positioned for it. We have really developed our data cloud and our arsenal flight data marketplace to the point where it's completely operational.

And hope we'll see you at our Investor Day because not only we want to talk about it, we're also going to show you a bunch of stuff and see how far we've come in that area.

Brent Bracelin -- Piper Sandler -- Analyst

Looking forward to it. Thanks, Frank, Mike, for another great quarter here. Thanks. Bye.

Operator

Your next question comes from the line of Keith Weiss with Morgan Stanley.

Keith Weiss -- Morgan Stanley -- Analyst

Excellent. Thank you again, and very nice quarter. Frank, I wanted to continue that discussion on edges and the percentage of customers that are kind of adding the edges around from 10% to 15% and the amount of edges of 33% quarter on quarter. Is that something we should think about as is going to directly impact consumption? Does that -- have you seen that the more edges the customer have, the more data consumption is going on with -- within their data warehouse, or is this more of a construct about stickiness? Once you get ingrained with all these partners, you're never going to stop using the Snowflake solution.

How should we think about these like the financial impact of this growth in edges?

Frank Slootman -- Chairman and Chief Executive Officer

Well, you know, your -- the answer is both obviously. It's going to make things incredibly sticky. But, you know, for us to designate something as an edge, you know, it has to have a minimal amount of time in terms of durable consumption. So there is very much a consumption dimension to these edges that we track and monitor.

Otherwise, we don't consider it an edge in our world. In other words, they have to be durable and stable because, you know, a lot of their relationships are transient. They exist for a period of time. They exist for a project, maybe a trial, you know, whatever it is.

But that's not -- that's also a metric that we follow, what we really look for what we'll call stable or durable edges. So if they exist over a period of time, they drive consistent consumption. So the answer is absolutely both to your question.

Keith Weiss -- Morgan Stanley -- Analyst

Got it. If I could sneak in one follow-up for Mike. The 27 customers getting to that million-dollar-plus level this quarter, that's a real eye-popping number. It's more than you did in the first three quarters of last year.

Anything, in particular, getting that motion going faster? And on the other side of the equation, is that a number we can expect to see on a go-forward basis, or is that kind of too high of an expectation in the half of the remainder of the year?

Mike Scarpelli -- Chief Financial Officer

Well, I'm not going to guide to million-dollar customers. All I will say is there's a number of -- as there was going into this quarter, we had a number of customers on the cusp of going to a million and we continue to see a number. And I think it's going to be very strong growth. But what I want to remind people is when we land a customer, it takes many times, six to nine months.

I think it's closer to nine months before a customer actually starts to consume at their contract rate. And so a lot of this is the impact of really focusing on larger customers over the last year and a half that we're starting to see that pay off. But what I will say is of that 104 customers, only I think both 25% of those are actually majors and then the balance is enterprise customers. So think of that Fortune 500, only about 25% of Fortune 500.

The others are across the board in customers. And my point there is even small company can be big consumers of Snowflake. And there's a lot of room, as I said, that are just on that cusp, but we expect that to continue.

Keith Weiss -- Morgan Stanley -- Analyst

Awesome. Thanks so much, guys.

Operator

Your next question comes from the line of Derrick Wood with Cowen.

Derrick Wood -- Cowen and Company -- Analyst

Great. Congrats on a great quarter. Frank, what's -- love to hear about what's causing the breakout and growth in international regions. I know you guys had some leadership changes.

You know, I'm sure you're feeding more headcount there. So how much is kind of your own efforts versus other factors like market awareness or growing cloud acceptance or anything else you'd call out? 

Frank Slootman -- Chairman and Chief Executive Officer

No, it's exactly what you just said. I mean, we just needed to properly operationalize ourselves in these geographies. You know, as you know, it's market by market and we have to have the correct leadership in place. You know, we've made a lot of leadership changes in these regions that we're very pleased with.

And, you know, when you have a great product like Snowflake, I mean, you know, the impact of that. You know, it's going to come fast and furiously. So I'm personally going to invest a bunch of time, you know, in Europe given my own background because I think the opportunity is tremendous. So we're excited that we actually see these regions coming online and contributing, and then we expect that to continue.

You know, we're very happy with the latest changes we made in Asia Pacific as well. We have very high expectations of Japan. Obviously, ANZ, and there's other markets where we're going to be starting up as well.

Derrick Wood -- Cowen and Company -- Analyst

That's great. And maybe one for Mike. You know, I mean, numbers look great across the board. The one outlier was the Fortune 500, which looked like a kind of a slower net add in Q1.

Anything you could kind of speak to this number and maybe seasonality or our thoughts around how to -- what to expect going forward?

Mike Scarpelli -- Chief Financial Officer

Well, you know, these large accounts are very, very long sales cycles, and you are going to see lumpiness in the additions. Obviously, Q4 was a strong quarter, and as one would expect. That's just landing in the customer. That doesn't mean it contributed to revenue.

As I said, most of those Fortune 500, we landed in Q4. We've seen virtually no revenue from them yet today. I can't stress that enough. And given Q4 is the end of a commission year for people and accelerators, reps do everything natural to close everything in the end of that commission year.


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So I fully expect we'll continue to close Fortune 500 the balance of the year and it's all based upon when the customer is ready to begin that journey. 

Derrick Wood -- Cowen and Company -- Analyst

That's great. OK. Thanks.

Operator

Our next question comes from the line of Kash Rangan with Goldman Sachs.

Kash Rangan -- Goldman Sachs -- Analyst

Thank you very much. Congratulations on the quarter. Two questions. One is that you talked about the never-ending replacement of data warehousing.

Can you just expand on that? I'm fascinated by it because we seem to think -- at least, I seem to think that data warehousing is just a small subsegment of the database market. But your comments seem to suggest that it's a longer-term longer-tailed growth opportunity, that very core of the business. And one for you, Mike. I know that for your guidance, it doesn't look like you're assuming a big slow two obviously, but is that again because you do not want to forecast increases in consumption revenues that's why the revenue forecast for the upcoming quarters is conservative? Thank you so much.

Frank Slootman -- Chairman and Chief Executive Officer

Yeah, Kash, Frank. Yeah, we're actually super early innings on replacing this legacy on-premise data where all this license. You know, it's actually -- and actually, you see that in some maturity as numbers but they're actually hanging on to their business. You know, one of the reasons has been, you know, we think Snowflake has really been the only company that's been successful in transitioning these legacy systems.

You know, we -- we've not seen it done successfully by the public cloud companies. So most of that opportunity is still there and it's still coming. That's why I think it is for all intents and purposes indefinitely. So much of our business is actually not coming from, you know, from those sources.

But our expectation is that it will continue to contribute materially to our business for a very long period of time.

Mike Scarpelli -- Chief Financial Officer

And your question Kash on bip. We did flow the bip through to the full-year guidance, plus about a million more. But we also had the headwind going to the full year. As I mentioned, we introduced new storage compression technology that we literally just rolled out.

And based upon the early feedback of that, it's going to take about 13 million of our revenue away from the company because the economics of our storage is so much better for our customer with that compression. I mean, much higher than we were expecting it to be, which is a good thing for our customers, and longer term, it's going to drive more -- is going to cause customers to put more data in Snowflake, which will ultimately drive more consumption.

Kash Rangan -- Goldman Sachs -- Analyst

Wonderful. Thank you so much. Frank, if I could just follow very quickly. The cloud-based, the Hyperscalers, they own their warehouse cloud offerings.

Why is it that Snowflake's been able to keep them at bay? I know they're partners of yours. [Inaudible] and given the way, I think you can compete in this market. Any structural barriers and advantages that you guys have against the Hyperscalers that have their own cloud-based data warehouses? Thank you so much and that's it.

Frank Slootman -- Chairman and Chief Executive Officer

Well, you know, I can go on and on about what all the reasons are. But, you know, for the purposes of this call, you know, one of the things that makes Snowflake completely different is that, you know, our founding team started with a clean sheet of paper. They obviously were deeply steeped in database technology over a very long period of time and they were looking to absolutely not carry any legacy forward that they didn't like and really reinvent architecturally for cloud-scale computing, which is very, very different from on-premise. So it was incredibly different, very, very innovative.

As a result, you know, we're not straddling the on-premise and public cloud environments. We're only in the public cloud. And it is very important. I mean, you look at a lot of the public cloud companies, they have carried not only architecture but actual code forward from our product environment and they've tried to evolve that and adapt that.

And the thing that we always say is just, look, you know, it's hard to catch up when you're not sitting on a good architecture. You'll only going to get farther behind. Architecture matters. It matters a whole lot.

And this is really the strength of Snowflake is rooted in its core architecture. Something we should never lose sight of.

Operator

Your next question comes from the line of Kirk Materne with Evercore ISI.

Kirk Materne -- Evercore ISI -- Analyst

Yeah, thanks very much, and congrats on the quarter. Frank, I was wondering if you can maybe just expand a little bit on your comments on the verticals. It seems to me when we start thinking about the data sharing opportunity, landing some of those key beachhead clients in each verticals could be really important to sort of build-out beyond that. And I guess along those lines, I was just kind of curious where you think you are in each of those six verticals, that there's a couple that are maybe ahead of the game on sort of building out sort of real market knowledge, having salespeople and understand the intricacies in each of those verticals versus maybe the ones that you still need to do some work on? Thanks. 

Frank Slootman -- Chairman and Chief Executive Officer

Yeah, that's kind of a broad-ranging question. And again, you know, definitely come and see us at summit because we're going to showcase a lot of customers in these verticals. You're going to hear directly from them in terms of what they're doing and how they're doing it. But our largest vertical, and this doesn't actually surprise some people, is actually in media, is in streaming content and advertising.

It's actually not that much of a surprise because they are a digital-to-consumer business. There's no other way for companies like Hulu, and Disney, and Comcast, and NBCUniversal to run their businesses and they are very sophisticated, very advanced. And obviously, because of the dominance in advertising of the likes of Amazon, Facebook, and Google, this is very, very important to them how to develop their businesses, and Snowflake is really a key enabler for that for many reasons. And so that's just one example of a business that is extremely active with Snowflake at this point because of the strategic challenges that are going on over there.

Second largest vertical is actually financial. That might not be -- large financial institutions, that may not be much of a surprise. They tend to be for formal software companies, healthcare and life sciences is huge. Retail, obviously, and consumer packaged goods is very, very big for us for similar reasons because digital transformation is so large in that part of the world.

Of course, the whole advertising side, a very big thing over there as well. You know, public sector, software companies is a very large component of our business because many, many software companies out there, and you'll see a lot of that at our summit event, are replatforming on top of Snowflake. Snowflake becoming a core part of their stock. So there's a lot of moving parts in our world.

Really excited about the progress we have made as a company that we no longer sell exclusively on architectural distinction, but we've really crossed over into the customers' business and really enabling their challenges, their outcomes, and it makes us a much higher value, you know, partner than we historically have been when we were just focused on, you know, shifting and lifting workloads from on-premise to the cloud.

Kirk Materne -- Evercore ISI -- Analyst

That's really helpful. And, Mike, if I could just squeeze in a really quick one. Within your consumption model and we're heading into the summer season, is there anything you can think in terms of seasonality, so on just consumption over the summer? Over the years, we've seen sort of bookings trends obviously way -- come down a little bit in say the third quarter. Is there anything we should consider in terms of your full-year guidance on that side?

Mike Scarpelli -- Chief Financial Officer

First of all, it's factored into that, but there is no -- you know, you see more seasonality on weekends, obviously, because there's not as many employees in the office, but a lot of our workload still run on weekends too. So it's not we could drop to zero. So clearly, around holidays, you do see some, but it's not a profound in terms of people taking vacation in the summer that you see a big drop off in consumption. We really haven't seen that.

Kirk Materne -- Evercore ISI -- Analyst

Thank you, all. Congrats.

Operator

Your next question comes from the line of Karl Keirstead with UBS.

Karl Keirstead -- UBS -- Analsyt

Great, thank you. Maybe two for Mike. Mike, any noticeable change in the revenue mix between Snowflake on AWS versus Snowflake on Azure? And then I got a quick follow-up.

Mike Scarpelli -- Chief Financial Officer

I will still say AWS is still our biggest, but Azure from new bookings as we get into the large enterprise, that continues to increase as a percent. But still, AWS is far our biggest from new bookings. 

Karl Keirstead -- UBS -- Analsyt

OK. Makes sense. And then, Mike, just as a follow-up, interesting on the storage compression change and the delta in terms of the revenues. I'm just wondering whether that's symbolic of any change in pricing strategy? Maybe you, Frank, and the team has a greater willingness now to pass these types of cost savings on to customers to drive future growth, or was this change a little bit more one-time as opposed to a, you know, a real high-level pricing strategy change? Thank you.

Mike Scarpelli -- Chief Financial Officer

Well, I'll be transparent. I learned a lot in this process. So this is something the company has historically done about every two years. There's a big focus on new compression technology for storage.

And the impact of it was bigger than we would have thought. And we only knew that once we actually got real-life examples from customers. And our philosophy has always been to pass that on to customers. But there's -- other performance improvements as well.

For instance, we're working on new chip technology that will dramatically impro -- increase performance or improve performance. So we do expect that to have an impact. And that's more of next year, you'll see that, and we have always done that and continue to improve the performance of our product that goes directly to the benefit of our customers. 

Karl Keirstead -- UBS -- Analsyt

Got it. Makes sense. OK. Thanks for that feedback.

Operator

Our next question comes from the line of Gregg Moskowitz with Mizuho. 

Gregg Moskowitz -- Mizuho Securities -- Analyst

All right. Congratulations, and thanks for taking the questions. I have follow up on secure data sharing. So as that ramps, naturally your consumption is going to rise by a lot.

But so too will the complexity of all the data that's being shared in all kinds of intricate ways, and so I'm wondering, do you have any concerns about maintaining a high level of security and governance on the platform as that unfolds?

Frank Slootman -- Chairman and Chief Executive Officer

It's Frank, the answer is no, not really. Because, you know, data sharing is completely integral to our architecture. In other words, we're deploying the exact same security model that we deploy for internal as we do for external security. So as I said earlier, you know, architecture matters.

And this is one probably does is beautifully designed for doing exactly what it does. This is not a bolt-on, it's not a hack. It is just incredibly well implemented. So the answer would be no to your question.

Gregg Moskowitz -- Mizuho Securities -- Analyst

That's helpful. Thanks, Frank. And then a quick follow-up for Mike. So you mentioned that EMEA bookings grew over 200%, Asia Pac over 300.

Does this reflect acceleration? Can you say what the growth looks like in fiscal '21?

Mike Scarpelli -- Chief Financial Officer

What I will say is both EMEA and APAC exceeded their plan. It had very strong quarters. We saw a million-dollar-plus -- it was actually a multimillion-dollar deal we did in EMEA with the big pharmaceutical company. And we landed a nice -- very nice customer in Japan as well and saw very strong across the board I would say performance in EMEA and APAC.

Gregg Moskowitz -- Mizuho Securities -- Analyst

All right. That's great. Thanks very much.

Operator

Our next question comes from the line of Raimo Lenschow from Barclays.

Raimo Lenschow -- Barclays Investment Bank -- Analyst

Hey, thanks for squeezing me in, and congrats from me as well. Quick question, as you -- Frank, as you look into the replacement cycle and you kind of pointed out you're the one that actually does it properly. Where are you -- what do you think around the partner capacity to help you there? You mentioned Deloitte already obviously as one big one. But I assume, you know, just getting all the tier data is actually quite the job with kind of a lot of extra work involved.

Where are you -- how happy are you with the channel there? And then I had one follow-up for Mike. 

Frank Slootman -- Chairman and Chief Executive Officer

Well, we're happy in places I highlighted our relationship with Deloitte, who is our lead partner. You know, they went from a standing start, you know, a little bit over a year ago to $100 million in business, which is an absolutely ripping, you know, trajectory that they're on. Just shows you that demand for these migrations is enormous. You know, we have a lot of engagements from all the other big names out there, whether it's Capgemini or Intel system, obviously, Accenture, and so on.

But they're all scrambling to certify, to staff, to provision. Our professional services organization is actually by far the best at this. And that's obviously a logical consequence of the fact that this is all we do. So we're really using our own abilities to help leverage them into the business.

And it's not easy because the ramp is so steep for everybody and we've got to make sure that we do an absolutely terrific job for our customers because these migrations are not easy. They're not cheap. There's risk involved, and so on. And that's really the friction in the marketplace.

So it's actually very welcome that the system integrators are leaning in as hard as they are. But the enablement, you know, for them to become a really effective, large growing businesses is sort of the day-to-day challenge that we have. But, you know, I view it as all good work that we do.

Raimo Lenschow -- Barclays Investment Bank -- Analyst

Yeah. OK. Makes sense. Hey, good luck.

And then, Mike, the storage compression [Inaudible]. Like does that impact gross margins? Might be a stupid question, but like the 72% is really, really high. I know everyone's wondering like how might -- how do you manage to get so quickly there and is there kind of more upside next year with compression etc. works? Is it totally unrelated? 

Mike Scarpelli -- Chief Financial Officer

Well, what I will say is the -- it does improve margins, and the way it improves margin is because storage becomes more efficient. Storage is a smaller component of the overall mix of the revenue, and compute is the real value of our software that drives more margin. And I will say, we did roll this out in April and you do see some of that coming into an impact on last quarter. But, you know, we did say at our IPO if you remember, we thought we could get to the mid-70s.

I feel very good that we'll get to the mid-70s. It's going to take some time, and stay tuned for our Investor Day and we'll talk more about that later. I would say the biggest improvement we've seen to date in the gross margin has really been the renegotiation of our contracts with our cloud vendors and the discipline in our sales organization around discounting and coupled with the fact as we move into larger enterprises, we're selling more business-critical enterprise, which attract a higher contribution margin.

Raimo Lenschow -- Barclays Investment Bank -- Analyst

Thank you.

Operator

Your next question comes from the line of Brent Thill with Jefferies.

Brent Thill -- Jefferies -- Analyst

Mike, just on quota-carrying reps this year, if you're not giving a number, can you just give us a sense of are you going to keep the same trajectory of growth you added last year, or trying to get more productivity out the reps you added? Just any color around on the quota-carrying side would be helpful. Thanks.

Mike Scarpelli -- Chief Financial Officer

Well, we don't disclose quota-carrying reps, and what I will say is we're going to add about 1,200 net employees for the full year and we do expect that we'll add about the same level into our sales organization this year as we did last year. 

Brent Thill -- Jefferies -- Analyst

So same number of absolute reps? 

Mike Scarpelli -- Chief Financial Officer

Correct. 

Brent Thill -- Jefferies -- Analyst

Great. Thank you, Mike.

Operator

Our next question comes from the line of DJ Hynes with Canaccord Genuity.

DJ Hynes -- Canaccord Genuity -- Analyst

Hey, thanks. Frank, I want to ask about Snowflake Ventures. You called out ThoughtSpot and Dataiku. I know DataRobot is in the portfolio.

So obviously, you know, analytics and all AI are logical targets. Curious, like where else are you seeing interesting stuff happening in the ecosystem as it pertains to driving volumes to Snowflake? 

Frank Slootman -- Chairman and Chief Executive Officer

Yeah, areas like governance. You know, obviously, the governance is just becoming such a huge aspect of data operations in large institutions. You know, when I say governance, it really relates to security, as well as privacy compliance. So we actually acquired a company last year by the name of CryptoNumerics.

And that is now actually flowing into our platform and we have the ability to anonymized PII data and things of that sort. Super, super important that customers can really feel safe, you know, on our platform that, you know, when they allow data on our platform, that is fully governed. I mean, it's been a big issue but has literally grown in importance quarter on quarter, and a lot of our large customers are really organizing themselves to, you know, to maintain that kind of a posture. You know, there's sort of -- there's areas in data cataloging.

I mean, there's a whole ecosystem around our platform. You know, what we like about investing is not just the upside in terms of the investments, but, you know, we get to build a closer relationship with these customers on the basis of the investments, you know, much more seamless integrations, better customer experiences. And that's what we like to do. I mean, we're very much an ecosystem-oriented company rather than we have one flavor and that's what you're going to use.

You know, we want to make sure that the whole ecosystem, you know, feels like a very good experience to our customers. So we look for opportunities. We see a lot and we're happy with the number of investments that we've done, and we know we're looking at new stuff continually.

DJ Hynes -- Canaccord Genuity -- Analyst

Yeah, yeah, thanks. Obviously some -- two good ones in the portfolio already. Mike, a follow-up to you. So Raimo asked about gross margins as it pertains to kind of storage compression technology.

I was going to ask if I think about the trajectory is kind of you guys expand into doing more with unstructured data. I think there are heavy demands on storage there. Like how should we think about the trajectory of gross margins as we get to the mid-70s target? I mean, is it fair to think like a dip in the interim, or what's the right way to think about that?

Mike Scarpelli -- Chief Financial Officer

I don't see a dip happening in our product gross margins at all. But there is a limit to where you can get to. And as when we're going through our IPO, people were asking questions. I did say I don't see us getting into the 80s.

I can see us a path to the mid-70s. We may one day be able to get into the high 70s. But given the storage component and we are passing the costs associated with the public clouds are in there, it's pretty hard to get beyond that. 

DJ Hynes -- Canaccord Genuity -- Analyst

Yeah, makes sense. OK. Thanks. Nice numbers, guys.

Operator

Our next question comes from the line of Brad Reback with Stifel.

Brad Reback -- Stifel Financial Corp. -- Analyst

Hi, great. Thanks very much. Mike, I think last quarter you talked about investment in FedRAMP. Can you maybe give us an update where you stand and do you think the federal vertical a contributor in fiscal 2023?

Mike Scarpelli -- Chief Financial Officer

So this FedRAMP high, we're working on. ITAR is going to be out mid this year. FedRAMP high end of the year. And obviously, if we didn't see a big opportunity, because there is a big cost associated with doing that, we wouldn't be doing it.

We have a very good pipeline within our -- the public sector and we're very focused on it. As of today, it's not a big driver of revenue, so that's a lot of upside there.

Brad Reback -- Stifel Financial Corp. -- Analyst

Great. Thanks very much.

Operator

Your next question comes from the line of Tyler Radke with Citi.

Tyler Radke -- Citi -- Analyst

Hey, thanks so much for taking my question. Maybe to start with Frank. I think earlier in the call, you talked about how kind of the legacy data warehouse migration, you know, has been a really important go-to-market notion. I'm curious, given your focus on the data cloud, like are you changing at all in terms of the initial use case that you're leaning with? Perhaps given the success you're seeing with data sharing and data marketplace, do you find that those are easier to perhaps land a new customer with given that it's more greenfield and less of the large scale legacy database migration?

Frank Slootman -- Chairman and Chief Executive Officer

Well, you know, the thing that happens is when people, you know, move these legacy workloads to the cloud and, you know, you're running a platform like Snowflake, and all of a sudden you're finding out that workloads can run orders of magnitude faster. In other words, it's not like after three weeks, you know, it can populate my warehouse. I'm now populating the dashboard, run the reports. People are almost -- you know, they've already moved on, you know, by the time they get data.

You know, when you accelerate that timeframe, we often talk about this whole concept that the time value of data. If you get data even -- most of our customers are now on a 24-hour cycle. But that's not moving up, right, where people are seeing data in hours and minutes, and we're very aggressively working to invent architectures where you get to sort of near real-time. Not in the computer science sense real-time, but in a visual sense, it's near real-time.

So you're now looking at data very differently than you did before where you had to wait for days and weeks for it to see it. Now, it's showing up very quickly. That completely changes people's perspective on what they can do with it, right? And that's -- that is what is so different than another -- these are enabled by the public cloud, coupled with Snowflake's architecture. That is what's driving the consumption and high net revenue retention rates because people are discovering completely new use cases and things they can do that were never a consideration in previous times.

It's very important that, you know, this whole static batch-oriented way of thinking we have in data warehouses are completely different now. OK?

Tyler Radke -- Citi -- Analyst

Thanks, and then a follow-up for Mike. I know that the current -- you don't really have a current RPOs because, obviously, it's a consumption-oriented model. But, you know, in terms of your comments on the percentage of our RPO that's expected to be recognized in the next 12 months, I just want to confirm it seem like that the growth in that number picked up quite a bit from the last few quarters. So number one, I just wanted to confirm that the growth rate on that number, and number two, just understand kind of the factors that drove what seems like a good bookings performance here in Q1?

Mike Scarpelli -- Chief Financial Officer

Well, it was a strong Q1 in bookings performance and we estimate that 54% of that RPO will roll off into revenue over the next 12 months, and it was 54% -- 55% last quarter. And I don't know what else there is to say about that, but we see it -- how we see it rolling out to revenue. 

Tyler Radke -- Citi -- Analyst

Thank you.

Operator

Our last question comes from the line of Kamil Mielczarek with William Blair.

Kamil Mielczarek -- William Blair -- Analyst

Hi, everyone. Congrats on a great start to the year, and thanks for taking my question. I have a follow-up on the targeted 1,200 headcount increase this year. Can you update us on the execution to date and should we expect that to be front-end loaded and maybe could you provide the split between the first half and second half of the year?

Mike Scarpelli -- Chief Financial Officer

Well, as I said in the remarks, we onboarded 436 net employees in the first half of the year. And so 1,200 is definitely front-end loaded. We always try to add a lot of people into our sales and marketing organization in the first month of the year to get the benefit of our sales kick-off. But I -- definitely we're going to continue to add and the first half is going to be more skewed to that.

Kamil Mielczarek -- William Blair -- Analyst

That's helpful. And you've delivered an incredible RPO growth over the past, it's been over 200% I guess for the past years now. Can you provide an update on contract duration, how that's changing? Is that something being pushed by your sales team, or is that just a function of more penetration at the enterprise level? Thank you.

Mike Scarpelli -- Chief Financial Officer

Well, last year was the first year we really incentivized our sales force to sell multiyear contracts. And what I would say is now it's getting more into the normal sales, most number of salespeople, it's more natural for them to be going in and asking customers to sign a three-year contract. Historically, we used to sell one-year contracts only. And so we still do have renewals in customer.

There are still some customers on renewals that only want to do a one-year renewal because that's what they've always done. And there are some customers, especially ones where their new customers, that want to do a one-year contract because they want to get to know us more. Generally, those newer customers we're finding on renewals are doing the multiyear renewals with us as they're seeing everything they can do on Snowflake. So -- but that's fully reflected in our RPO. 

Kamil Mielczarek -- William Blair -- Analyst

Makes sense. Thank you and congrats again. 

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Jimmy Sexton -- Head of Investor Relations

Frank Slootman -- Chairman and Chief Executive Officer

Mike Scarpelli -- Chief Financial Officer

Brent Bracelin -- Piper Sandler -- Analyst

Keith Weiss -- Morgan Stanley -- Analyst

Derrick Wood -- Cowen and Company -- Analyst

Kash Rangan -- Goldman Sachs -- Analyst

Kirk Materne -- Evercore ISI -- Analyst

Karl Keirstead -- UBS -- Analsyt

Gregg Moskowitz -- Mizuho Securities -- Analyst

Raimo Lenschow -- Barclays Investment Bank -- Analyst

Brent Thill -- Jefferies -- Analyst

DJ Hynes -- Canaccord Genuity -- Analyst

Brad Reback -- Stifel Financial Corp. -- Analyst

Tyler Radke -- Citi -- Analyst

Kamil Mielczarek -- William Blair -- Analyst

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